Bost

Bost estate planning Mock Exam 6-7b Name roll#
Facts for 1- 2: When Alex died in 2007, his taxable estate (also his adjusted taxable
estate) of $3 million included was a vested remainder in a trust that lasts until the death of
Marilyn, the income beneficiary. Given Marilyn’s age and the federal rate, the present
value of Alex’s interest in the trust was $1,000,000.
1 Which of the following are true statements regarding using §6163, Extension of
Time for Payment of Estate Tax on Value of Reversionary or Remainder Interest in
Property?
a. Alex’s estate can defer one third of the federal tax.
b. The amount that can be deferred is the difference between the tax owed and what
would have been owed if the vested remainder was not part of the estate.
c. None of the tax can be deferred because the value of the remainder is less than
35% of the value of Alex’s adjusted taxable estate.
d. The interest charged the estate on a portion of the deferred tax is a special relief
amount of only 2%.
2 Assuming (whether true or not) that the estate qualifies for deferral, when would the
deferred tax be due?
a. April 15 of the year following Marilyn’s death.
b. Three months after Marilyn dies.
c. Six months after Marilyn dies.
d. Nine months after Marilyn dies.
(Note, I can’t get endnote numbering to be continuous, i.e., it started over at 1, hence the
two sets of 1 and 2)--email me if you have a solution.
Facts for 1 - 2: In March of 2005, Eva gave Vincent ABC stock worth $1,344,000 and
she paid taxes of $138,190. In May of 2006, she gave $580,000 in cash to Warren and
Sally so they could purchase a farm. In November of 2007, Eva died owning property
with a net worth of $3,000,000. At the time of her death the stock she gave to Vincent
was worth $1,500,000.
1. For 2006, what was Eva’s gift tax?
a. $0 b. $246,860 c. $257,880 d. $730,850
2. Taking the two gifts into account, what is included in her gross estate?
1. The gift tax on the 2005 gift (if any).
2. The gift tax on the 2006 gift (if any).
3. The date of death value of the ABC stock.
a. 2 only b. 1 and 2 only c. 2 and 3 only
d. All 3, i.e., 1, 2, and 3 are included
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Facts for 3 - 4: In 2006, Terry gave Sandra stock worth $120,000. Terry’s basis in the
stock was $90,000. Terry filed a gift tax return showing this gift.
3. Assuming no gift tax was paid, Sandra’s basis in the stock is:
a. $78,000 b. $90,000 c. $108,000 d. $120,000
4. If Terry had to pay $24,000 in gift taxes, Sandra’s basis in the stock is:
a. $86,000 b. $104,000 c. $96,000 d. $126,000 e. $144,000
Facts for 5 - 10: Select the letter corresponding to the IRC section which causes all or a
portion of the property, or of the gift tax paid, to be included in the decedent’s gross
estate. If both 2035(a) and 2036 &/or 2038 apply select 2035(a). Note, IRC 2036 &/or
2038 are listed together because they often overlap.
a. IRC section 2035(a) which requires inclusion of certain gifts made within three
years of death.
b. IRC section 2035(b) which requires grossing up of certain gift taxes.
c. IRC section 2036 which requires inclusion of transfers with retained life estate,
etc. or IRC section 2038 which requires inclusion of revocable transfers, etc.
d. IRC section 2041 which requires inclusion of property over which one has a
general power of appointment.
e. None of the above apply and the property is not part of the decedent’s gross
estate.
5. D transferred a term life insurance policy (on her own life) to her son two years
before she died. D had no retained right in the policy which was $40,000 when she
transferred it. Her son collected the full face value of $500,000.
a. IRC 2035(a) b. IRC 2035(b) c. IRC 2036 &/or 2038
d. IRC 2041 e. Not part of gross estate
6. In 2005, for the first time in her life, D made a large gift, transferring stock worth
$550,000 to her son. D died in 2006, at which time the stock was worth $900,000.
a. IRC 2035(a) b. IRC 2035(b) c. IRC 2036 &/or 2038
d. IRC 2041 e. Not part of gross estate
7. In 2005, D transferred stock in a research company to Y. She died in 2006. The
stock was worth $350,000 at the time of the transfer, but publication of a newspaper
article about a patent on an exciting new drug that the company had developed caused the
stock to be valued at $1,000,000 at the time of her death.
a. IRC 2035(a) b. IRC 2035(b) c. IRC 2036 &/or 2038
d. IRC 2041 e. Not part of gross estate
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8. D transferred stock worth $900,000 into an irrevocable trust that gave a life estate to
B and the remainder to R. During the first twelve years of the trust, if B died and D was
still alive, D had the right to have the property go to A, instead of R. The power to change
the remainder beneficiary ceased at the earlier of D’s death or twelve years. Ten years
after establishing the trust, D died. B was still alive. Inclusion of the stock in D’s estate?
a. IRC 2035(a) b. IRC 2035(b) c. IRC 2036 &/or 2038
d. IRC 2041 e. Not part of gross estate
9. Same facts in the prior example except D died in year thirteen, several months after
his right to change remaindermen had ceased.
a. IRC 2035(a) b. IRC 2035(b) c. IRC 2036 &/or 2038
d. IRC 2041 e. Not part of gross estate
10. At his death 10 years ago, G’s will established an irrevocable trust. The trust gave
G’s son, D, the power to appoint, through specific mention in D’s will, all of the trust
corpus to either of G’s other two children (X and Y) in such portion as D might choose.
Any unappointed trust corpus would go to G’s niece, R. When D died his will appointed
30% of the trust to X and 20% to Y, the balance was distributed to R.
a. IRC 2035(a) b. IRC 2035(b) c. IRC 2036 &/or 2038
d. IRC 2041 e. Not part of gross estate
Facts for 11 - 13: Wanda purchased a sailboat for $240,000, taking title in joint tenancy
with her three children. The annual exclusion was $10,000.
11. What is the total for the taxable gifts shown on Wanda’s gift tax return?
a. $120,000 b. $150,000 c. $180,000 d. $240,000
12. Wanda died when the sailboat was worth $180,000. Insofar as the sailboat is
concerned, what value would be included in her gross estate?
a. $0 b. $45,000 c. $90,000 d. $180,000
13. Given the facts immediately preceding this question, what would each child’s basis
be in his or her share of the sailboat?
a. $0 b. $45,000 c. $60,000 d. $75,000
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NO full PTC on an exam except as take home.
Facts for 14 - 16: When D1 died in January of 2005, she left her estate in equal shares to
her four children. Her estate was worth $6,800,000 and it paid federal estate taxes of
$2,481,000. Her youngest daughter, D2, died in May of 2009. Her taxable estate was
valued at $5,200,000 and would have federal estate taxes of $765,000 but for the PTC.
14. What is the PTC limit one amount?
a. $620,250 b. $1,241,063 c. $827,600
15. What is the PTC limit two amount? [On a test you might be asked the value of D2's
reduced taxable estate.]
a. $231,667 b. $485,888 c. $765,000 d. $358,938
16. What time factor is applicable to this PTC?
a. 20% b. 40% c. 60% d. 80% e. 100%
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Solutions
1 a The amount that can be deferred is ratio of the vested remainder to the taxable
estate. There is no percentage requirement for deferring the tax attributed to a
vested remainder or reversion. The only 2% relief interest rate is in connection
with §6166 and relates to a business interest that is included in the estate.
2 c The deferral is until six months after the income interest ends. One can use 6161,
extension for good cause, to obtain up to three years additional time. Of course
interest is accruing.
1. b tentative tax on the $1,889,000 (i.e., $1,333,000 + $556,000 less tentative tax on
prior taxable gift of $1,333,000; less the available unified credit. $730,850 -
$483,990 = $246,860; $345,800 - $345,800 = $0; and $246,860 - $0 = $246,860.
2. b Both gifts were within 3 years, therefore the gift taxes were brought back into the
gross estate [§2035(c)], but the gifts themselves are out and stay out because they
are simply adjusted taxable gifts.
3. b carry over basis (COB) of $90,000.
4. c ((120 - 90)/120) * $24,000 + $90,000 = $96,000
5. a special case, life insurance
6. e adjusted taxable gift only, therefore, in the tax base but NOT in the gross estate.
No gift tax because it was under $600,000.
7. e stock, garden variety transfer, no 3 year rule applies.
8. c retained interest that didn’t end before death of the transferor
9. e retained interest that did end by the terms of the transfer, therefore do not include.
Even though the end of D’s power to alter enjoyment was within three years of
D’s death, D did not release or transfer the right, therefore §2035(a) does not
apply.
10. e D is the holder of a limited power.
11. b three $60,000 gifts minus three $10,000 annual exclusions
12. d the consideration furnished rule of §2040.
13. c the consideration furnished rule of §2040 steps the basis up to FMV, then allocate
equally to the surviving joint tenants
14. a D2’s share * D1’s federal estate tax = limit one, i.e., $2,481,000/3 = $620,250.
15. b D2’s reduced taxable estate is: $5,200,000 - 1/4 * ($6,800,000 - $2,481,000) =
$4,120,250. The federal tax on that is $279,113. Finally: $765,000 - $279,113 =
$485,888.
16. c Draw a time line showing D1’s death and D2’s death, place markers every two
years, starting with D1’s death. For the first two years the factor is 100%, then
80%, then 60%, etc. This one is in the fifth year (i.e., just over four), so 60% is
the correct factor.
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